Saxon Mortgage Services, Inc. v. Harrison

Decision Date11 June 2009
Docket NumberNo. 891 September Term, 2008.,891 September Term, 2008.
Citation973 A.2d 841,186 Md. App. 228
CourtCourt of Special Appeals of Maryland

Adam Hiller & Rita Ting-Hopper (L. Darren Goldberg, Draper & Goldberg, P.L.L.C., on the brief), Leesburg, VA, for Appellant.

C. William Clark (Nolan, Plumhoff & Williams, Chartered, on the brief), Towson, MD and William L. Stauffer, Jr. (Thomas J. McKee, Jr., Williams Mullen, P.C., on the brief), McLean, VA, for Appellee.

Panel: DAVIS, WOODWARD and CHARLES E. MOYLAN JR. (Retired, Specially Assigned), JJ.

DAVIS, Judge.

On July 27, 2006, Saxon Mortgage Services, Inc., appellant, filed a complaint in the Circuit Court for Frederick County, asserting claims of conversion and negligence against Middleburg Bank and Chesapeake Bank of Maryland (Chesapeake Bank), appellees, in relation to payment of a $140,000 check issued by Joint Insurance Association (JIA), which appellant, as a co-payee, neither indorsed nor authorized to be indorsed on its behalf. Appellant's complaint further alleged breach of contract on the part of JIA and asserted claims of conversion, fraud, intentional misrepresentation and breach of contract against Paula Harrison and Steven Siegel. On November 13, 2006, the negligence claim against Chesapeake Bank was dismissed. On June 21, 2007, the circuit court entered default judgments against Harrison and Siegel, neither of whom are parties to this appeal. On October 4, 2007, the circuit court awarded summary judgment in favor of JIA on the breach of contract claim. In addition, on October 4, 2007, the circuit court stayed a cross claim filed by Chesapeake Bank against Middleburg Bank.

On October 31, 2007, the circuit court entered an order granting appellees' motions in limine and precluding appellant from introducing evidence at trial that appellant first disclosed after the discovery deadline. The circuit court subsequently denied appellant's motion for reconsideration of that decision.

A bench trial on the conversion claims against appellees and the remaining negligence claim against Middleburg Bank commenced on May 6, 2008. At the close of appellant's case-in-chief, the circuit court granted judgment in favor of appellees on all counts and denied appellant's motion for judgment on the conversion claims. Appellant appeals from the judgments against it1 and presents four questions for our review, which we have rephrased, reordered and consolidated as follows:2

I. Did the circuit court abuse its discretion by precluding appellant from using evidence that it first disclosed after the court-ordered discovery deadline?

II. Did the circuit court erroneously conclude that appellant, one of multiple payees of a check, had the initial burden, under § 3-420(b) of the Commercial Law Article,[3] of proving its actual interest in the proceeds of the instrument?

III. Did the circuit court err by granting appellee Middleburg Bank's motion for judgment on appellant's negligence claim on the grounds that appellant failed to adduce expert testimony regarding banking industry standards?

For the reasons that follow, we answer the first question in the negative and the second and third questions in the affirmative. Accordingly, we affirm the circuit court's judgment in relation to appellant's discovery violations but reverse the circuit court's judgments in favor of appellees on appellant's conversion and negligence claims.


This case involves claims of conversion and negligence brought by a payee against a depositary bank and a payor bank in relation to the payment of a check bearing a forged indorsement. An agreed stipulation of facts, which was jointly submitted at trial by appellant and appellees, provides the following factual background:

JIA provided insurance coverage on a property located at 123 Ninth Avenue in Brunswick, Maryland, pursuant to the terms of an insurance policy. Appellant was listed on the "Declarations Page" of the insurance policy as the "first mortgagee and/or loss payee." Harrison and Siegel were named as the insureds on the insurance policy. On the same "Declarations Page," the insurance policy also identified American General Financial Services (American General) as the "second mortgagee and/or loss payee."

Following an April 27, 2005 fire on the property, Harrison and Siegel submitted an insurance claim to JIA in relation to the fire loss. After adjusting the claim, JIA determined that it would pay the $140,000 policy limit for damage to the property, pursuant to the terms of the insurance policy. Consequently, on May 13, 2005, JIA, the drawer,4 issued a check in the face amount of $140,000, made payable to the order of "PAULA HARRISON and STEVEN SIEGEL and SAXON MORTGAGE SERVICE and AMERICAN GENERAL FINANCIAL SERVICES ITS SUCCESSORS, AND/OR ASSIGNS, ATIMA." JIA included appellant on the check because appellant was named as the first mortgagee and/or loss payee under the insurance policy. American General was also named by JIA as a co-payee because of its status as the second mortgagee and/or loss payee under the insurance policy. The parties stipulated that the term "ATIMA" stood for the phrase, "as their interests may appear."

JIA's adjuster, Joe Zynel, hand-delivered the check to Harrison. On May 19, 2005, the law firm of Dunlap Grubb Weaver and Whitbeck, P.C. (the Dunlap Firm) endorsed the check and presented it for deposit to Middleburg Bank in Leesburg, Virginia, thus casting Middleburg Bank in the role of "depositary bank," as far as the subject check is concerned, from that point forward.5 Although the stipulation of facts does not explain why the Dunlap Firm, which has never been a party to this case, endorsed the check, appellant's opening statement at trial suggested that Harrison may have endorsed the check to an attorney at the Dunlap Firm. The Dunlap Firm also held an account at Middleburg Bank.

Although appellant neither indorsed the check nor authorized any person to indorse the check on its behalf, the word "Saxon" was handwritten on the back of the check. Middleburg Bank accepted the check for deposit, without contacting either appellant or JIA to confirm the validity of the purported indorsement. Middleburg Bank delivered the check to its intermediary bank. The check was ultimately transferred through the Federal Reserve Bank to Chesapeake Bank, where Chesapeake Bank electronically debited $140,000 from JIA's account. Chesapeake Bank thus became, for our purposes, the drawee, or payor, bank.6 A sum of $140,000 was ultimately credited to the Dunlap Firm account at Middleburg Bank.

Upon learning that the check was deposited and paid without appellant's indorsement, appellant contacted JIA and requested that JIA offer appellant a replacement payment for the check. Once JIA became aware that appellant neither indorsed nor authorized indorsement of the check and that appellant had never received any of the proceeds of the check, JIA contacted Chesapeake Bank, which informed JIA that Middleburg Bank had accepted the check as if it were fully indorsed. Chesapeake Bank refused JIA's demand to credit its account for $140,000. JIA, in turn, declined appellant's request for a replacement payment.

After appellant filed its complaint in this case, Middleburg Bank instituted an action against Harrison, Siegel and the Dunlap Firm in the Circuit Court for Loudoun County, Virginia. That action was still pending at the time of trial.

A series of pretrial proceedings disposed of various claims originally filed by appellant and the case proceeded to trial on (1) appellant's conversion claims against Middleburg Bank and Chesapeake Bank, under the Maryland Uniform Commercial Code, and (2) appellant's negligence claim against Middleburg Bank. Evidence was adduced establishing that, in September 2003, Harrison granted a deed of trust on the property to First Franklin Financial Corporation, a Delaware corporation, which, in turn, loaned Harrison $153,000. Appellant's Senior Claims Representative, Paul McAllister, testified during his deposition that First Franklin Mortgage Loan Trust 2003-FF5 assigned the deed of trust and note7 to Wells Fargo Bank National Association (Wells Fargo Bank), which then held the note and deed of trust in a "trust" capacity. McAllister further testified at trial that appellant was the mortgage servicer for Wells Fargo Bank and was responsible for obtaining the insurance money paid by JIA on this insurance claim. Appellees disputed appellant's interest in the check and the amount of damages incurred by appellant as a result of the payment on the check.

Additional facts shall be discussed, as required, throughout the remainder of this opinion.

I Discovery Violations & Exclusion of Evidence

Appellant assigns error to the circuit court's decision to grant appellees' motions in limine, precluding appellant from introducing, in any proceeding before the court, any reference to certain documents and information produced by appellant after July 20, 2007, the deadline by which discovery was to have been completed. Appellant further challenges the circuit court's denial of appellant's Motion for Reconsideration, which requested that the circuit court reconsider its ruling granting appellees' motions in limine. In order to address the merits of appellant's arguments, we first review the timeline of events forming the backdrop of the discovery dispute between the parties.

A Discovery Deadlines

Appellant's complaint was filed on July 27, 2006.8 Throughout 2006, various pre-trial matters were submitted to and addressed by the court. On March 21, 2007, the circuit court entered a scheduling order requiring that discovery be completed at least seventy-five days prior to the August 21, 2007 trial date or by June 7, 2007. On May 14, 2007, the circuit court extended the discovery deadline to July 7, 2007. In a subsequent order, the circuit...

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